While some of these items are non-negotiable, HOA lenders have been able to overcome other items with creative HOA loan structuring.

• The Developer (Declarant) may not be in voting control of the HOA Board and may not have ownership of anything more than 10% of the annual HOA budget.
• HOA unit owner delinquency rate to the HOA cannot be more than 7% of the total number of units being more than 60 days past due.
• The minimum number of units per HOA property should be at least 25 units in order for Bank to distribute its risk.
• Absentee HOA owners should not exceed 40% of the community. Absentee is defined as investor ownership distinguished by a long term lease relationship between an owner and a tenant. There is not intent by the owner to have personal use of the unit.
• HOA ownership concentrations in their summation should not exceed 30% of all owned units. No one unit owner should have control of over 10% of the units.
• Proposed budget increase to service the HOA loan should not exceed 100%. In the event it does, the increase should be put in place for a minimum of 4 billing cycles without 60 day delinquencies exceeding 7% of units

Learn more about HOA Loans

Why choose a HOA Loans or Condo Association Loans?
Loans Offer an Alternative to Spending Reserves. The capital outlay for major repairs and improvements can overtax a condo association's reserves, requiring special assessments to pay for specific projects or to rebuild reserves. While special assessments may make economic sense, they also impose financial hardship on members and may be difficult to get  approved. Once approved, the association may have difficulty collecting payments from all its members. Directors may then defer maintenance work - although this can leave them open to charges of negligence, particularly if there are health or safety issues involved. Or, they may try spreading the work out over time - which can raise the final cost of the work, as well as inconvenience residents.
On the other hand, borrowing money for repairs or improvements makes all needed funds available more quickly. And since financing work through a loan generally requires only a small increase in monthly assessments to cover debt servicing, there are fewer objections from homeowners.

Did you know HOA Loans and Condo Association Loans are sometimes referred to as Homeowners Association Loans too?

1. Condo association and HOA projects to modernize or update the property to stabalize or increase the condo values.  These projects often include updating the common areas like lobbies and elevators.
2. Replacement of building materials to the condo association building or HOA property. For example: new roofs are the most common building materials replacement, another popular one with homeowners associations is the repaving of private streets and roadways.
3. Construction defects funding from the condo association or HOA developer. Defect litigation can be very costly and could put cash crunch owners for a long time if an assessment is raised to do so. HOA loans are a great alternative for funding here.
4. Funding of condo association and HOA reserves.  If the association's reserves are too low, condo associations and HOA may have no other choice than to fund it.  Loans for funding are common practice and can work if the condo association or HOA has good credit.
5. The purchasing of a condo unit by the association.  Often times HOAs and Condo Associations want to purchase a unit for common purposes such as an office or for employee housing for association managers or on-site maintenance workers.

Learn more about condo association loans and HOA loans.

Which HOA Loan or Condo Association Loan is Right for You?
The fees, rates and other details for any individual loan are determined at the time a comprehensive application is made to the bank. However, the general parameters of our HOA loans include: A $50,000 minimum, and $10 million maximum.

An initial structure as a "non-revolving" line of credit during the construction phase of six months to one year. Once construction is completed, the line of credit is converted to a term loan.

Terms: one to seven years. Fixed and variable interest rate programs available. As collateral for the loan, the bank normally takes an assignment of any assessments connected with repayment of the loan plus the association's lien and assessment rights, and typically does not require personal guarantees or trust deeds against the residences of individual association members.

The advantages of obtaining co-op loans to meet capital improvement needs include:

• If funds are needed immediately for a capital improvement project, a co-op loan can help avoid a one-time special assessment fee, which some unit owners may not be able to afford.
• A co-op loan may minimize increases to member assessments, spreading the repayment over a longer period of time.
• A co-op loan will allow the association to receive more competitive bids on improvements, since all the repairs can be done at the same time.
• A co-op loan can allow the association to maintain a healthy reserve account for other emergencies.

Thanks to these new co-op, condo and HOA loan packages, associations facing major capital improvements have other options for raising money instead of simply passing these unpopular assessment increases on to members.

Learn more about condo association loans or HOA loans.

What are the different types of HOA loans or Condo Association Loans?

HOA Line of Credit is similar in concept to a credit card. An association has a maximum limit it can access. Interest is paid only on the money used. The money can be prepaid with no penalty. The interest rate is variable, meaning it changes monthly. HOA credit lines normally carry terms up to five years.

Term HOA Loan provides a homeowners association with all funds at once. The interest rate is locked, meaning the payments are the same amount every month for the life of the loan. An HOA term loan can range from 3 to 15 years.

Combination HOA Line of Credit and HOA Term Loan allows the condo association to obtain necessary funds for immediate projects. During the first 12 months, the condo association pays interest only on the amount used. At the end of the 12 months, the balance of the loan converts to a permanent term HOA loan. The term HOA loan can range from 3 to 15 years.

Benefits include:

Funds during the 12-month draw down option are used "as needed." The condo association is not charged for unused funds.

The condo association pays interest only on the amount used. This can help the condo association bridge the collection of a special assessment or increased maintenance fees. 

There is usually no charge for converting the line of credit to the term HOA loan.

A community association loan is a loan to the entire association to fund capital improvement repairs. The community association loan eliminates the need to incur a one-time large special assessment on residents or deplete association reserves. The loan can be structured as either a line of credit, a term loan or a combination line of credit and term loan from 3 to 15 years in length. The term loan or line of credit is secured by an association's receivables (monthly and special assessments) and reserve funds - not real estate.

Community Association Loans are also reffered to as Condo Association Loans or HOA Loans.

 

HOA Lenders' Reactions

Unfortunately, experience has shown that many HOA lenders turn a deaf ear to the borrowing requests of condominium or homeowners associations once they learn there is no second mortgage position with which to collateralize the HOA loan. As is the case with a condominium association, a homeowners association owns no property, yet it would be the entity seeking the HOA loan. By comparison, the homeowners association does own and does hold title to the common areas of the development. In a practical sense, however, these common areas would not be of value as HOA loan security to a lender because the land and recreational facilities are so burdened by easements and use restrictions that they would have little marketable value upon which a lender could collateralize a capital improvement loan.

To service this growing market, HOA lenders must look beyond the traditional approach of requiring a second mortgage position for such loans. HOA lenders must view the community associations as commercial borrowers that have a guaranteed cash flow based on the assessment and collection powers of the condo association. The assessment and collection powers of the community association will be a key in a loan officer's decision.

Assessment and Collection Powers

Powers of collection and assessment will vary from state to state. In the case of the condominium association, a state's condominium act will be the primary source of collection powers. The condominium documents will supplement and delineate the powers for a specific condominium within limits of state law. Courts have repeatedly upheld the powers of condominium and homeowners associations to collect assessments through court action.

The typical homeowner association's collection power is not based on state law but on recorded restrictive covenants. The lien is not statutory and must be recorded. Furthermore, homeowners associations are more limited in terms of recovery of attorney's fees, in some cases to the extent that it becomes economically unprofitable for the homeowners association to pursue a delinquent condo owner.

Yes. CondoAssociation.com has put together a national network of highly specialized condo association loan providers.  Regardless where your condo association or HOA is located, we can get you a quick condo association loan proposal or HOA loan proposal from a qualified lender that services your condo association's region.

Condo Association Loan and HOA Loan Documentation

HOA Loan documentation will include a loan agreement, a promissory note, a security agreement and financing statement, and a collateral assignment or conditional assignment of assessments. In addition to the terms of the loan, the agreement should carefully state and describe the security for the loan in terms of all condominium association assessments or the line item in the budget for the loan service. The security as stated above can also include the security interest in bank accounts placed at the lending institution.

The loan agreement also should include a statement that debt service shall be included as a separate line item in each annual budget of the association beginning with the first annual budget after the loan is made and all budgets thereafter during the term of the loan. The borrower should agree that the amount of the annual budget and the amount of the annual assessments and carrying charges levied against the condominium owners shall at all times be in an amount sufficient to service the loan and to meet all annual expenses of maintaining and operating the condominium or home-owners association.

The lender also may wish to include in the agreement a requirement that the association furnish on a regular basis a list of the owners who are delinquent in paying their assessments. In this way, the lender may discover potential problems in collection and forestall such problems. Finally, the lender should require a submission of the borrower's annual budget during the term of the loan.

The security agreement and financing statement should be drawn to satisfy the requirements of Article 9 of the UCC. The statement will include a security interest in all bank accounts of the debtor (borrower) and all of the debtor's rights, title, and interest in all present and future condominium assessments payable to the debtor from all unit owners. A conditional assignment of the assessment can be drafted so that it becomes operative on any default made by the association. It will remain in full force and effect as long as any default of payment of the loan continues. Through this instrument, the borrower will have conditionally assigned, transferred, and set over unto the lender all its rights, title, and interest in present and future assessments that are due to the borrowing association from each unit owner.

In reaching decisions about lending to the community association, loan officers should pay special attention to the assessment collection records provided by the association. Study of such records will show how the association has been able to manage its cash flow and thus will give a true indication of its ability to service the debt through a line item in the budget. Since the condo association budget would include a line item for debt service, the loan officer must determine from the association's documents how the budget is formulated and whether unit owners have the power to vote down a budget proposed by the board of directors.